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Brief: Citigroup Inc (C.N) Chief Financial Officer Mark Mason and investment banking head Paco Ybarra have tested positive for COVID-19, forcing the company to hold its investor day as a virtual day on Wednesday instead of in person. The change in plans was announced in an email from Citigroup to those who planned to attend. The names of the executives was confirmed by a spokesperson. Citigroup executives have been working for weeks to prepare presentations for the investor meeting, its first in five years. The conference is seen as a critical event for the company which has been unable to convince investors that it will be able to improve its financial performance to the level of its big bank peers. "While we hoped to host our Investor Day in person, health and safety must be our top priority,” CEO Jane Fraser said in the email.
Brief: How was your pandemic? That’s a question bond buyers can now get some clarity on, with the omicron variant fading. Issuers can now tell you how they fared financially in the nearly two years of the pandemic, how much they have received in federal assistance, and how much they spent. A not-so-little college town in Massachusetts that’s coming to market this week is a case in point. Cambridge is just outside Boston, and is the home of Harvard University and the Massachusetts Institute of Technology. The city of nearly 120,000 (according to the 2020 Census) is selling $92.3 million in limited tax general obligation bonds this week to help pay for construction of two schools, a fire station headquarters, sidewalks and sewers, among other things. There was some concern very early on in the pandemic that remote learning and closed campuses would hurt college towns dependent upon students’ presence. But Cambridge isn’t your typical small college town.
Brief: A list of companies that may have applied fraudulently for emergency loans during the pandemic has been complied by the U.K. Cabinet Office and is circulating among high street lenders, according to people familiar with the matter. The Cabinet Office has shared the information with the British Business Bank which has passed it on to the banks who issued the loans. The list includes companies with duplicate names and firms that had already been dissolved when they applied for support, according to an executive at a bank who asked not to be named given the sensitivity. “We work closely with Cabinet Office counter fraud function, who undertake data analytics for us which identifies possible cases of fraud which we can then share with lenders to investigate, or we can take other action as appropriate,” a spokesman for the British Business Bank said in an email. A spokesman for the Cabinet Office declined to comment.
Brief: The lowest-income Americans are facing a financial conundrum: Inflation is eating into a substantial part of their household budgets, while savings built up during the Covid pandemic are starting to dwindle. Meanwhile, federal supports like monthly payments of the child tax credit and a pause on student loan payments have ended or will soon lapse. And officials have already warned of delayed tax refunds, which low earners generally rely on more than higher-earning families. Consumer prices in January rose 7.5% from a year earlier, the fastest annual pace in 40 years. However, households don’t feel those price shocks equally. The lowest-income working households (which earn less than $20,000 a year) faced the highest inflation rate of any income group in 2021, according to an analysis by researchers at the University of Pennsylvania’s Wharton School. These families funneled more of their budgets to necessities like energy and transportation, prices of which grew more rapidly than other goods and services.
Brief: One of Canada’s largest business groups is calling on Prime Minister Justin Trudeau’s government to pare back stimulus plans, and turn its attention to climate transition goals and innovation strategies to address future economic challenges. In a five-page letter to Finance Minister Chrystia Freeland, the Business Council of Canada outlined areas of focus for the federal government’s coming budget to spur long-term growth, including a call for more spending discipline to restore the nation’s fiscal capacity. “Fiscal policy should be used judiciously to enhance Canada’s long-term productive capacity, rather than further stimulating an economy that is already overly dependent on household consumption,” Goldy Hyder, chief executive officer of the Ottawa-based lobby group, said in the letter.
Brief: Wall Street strategists are cutting their forecasts on European equities on concern that the war in Ukraine will hurt economic growth, while investors pull money from the region’s stock market at the fastest pace in three months. Bank of America Corp. and Goldman Sachs Group Inc. both lowered their index targets, with the latter now expecting virtually no full-year returns for Europe’s Stoxx 600 in 2022. Credit Suisse Group AG reduced its overweight, while EPFR Global data showed $1.8b outflows from the regional equity funds.The conflict has exacerbated an energy crunch in Europe, which is heavily reliant on Russian imports, just as central banks prepare to tighten policy to tackle already-high price pressures. Europe is also expected to be hit harder than the U.S., due to its closer economic ties and geographical proximity to the conflict. “Higher energy prices will likely push up inflation further and any tightness or disruption to the supply of energy, especially gas, in Europe would also have implications for production and GDP,” Goldman strategists led by Sharon Bell wrote in a note to clients.
Brief: Q4 was another solid quarter for hedge funds, with most strategies and all AUA categories delivering positive results, according to the Citco 2021 Q4 Hedge Fund Update. Overall weighted average returns for hedge funds were 1.52 per cent. The quarter once again largely continued a trend for funds on the Citco platform with net positive inflows for the months intra-quarter, and the quarter-end trading cycle experiencing some net outflows. In aggregate, investors added a net total of USD5.7 billion over the whole three-month period. In terms of flows into and out of strategies, Private Capital Hybrid saw impressive net capital of USD11.4 billion, while Multi Strategy and Equities saw meaningful outflows of USD2.7 billion and USD3.1 billion respectively. A year of record-breaking activity in Treasury continued into the final quarter, with total volumes breaking through the 100,000 mark after 39,790 payments in December. The grand total for Q4 came in at 102,549, 47 per cent higher than Q4 2020’s 69,905 payments.
Brief: January was a "negative month" for the European fund industry, as estimated net outflows from mutual funds and ETFs topped €12 billion during the month, according to new figures.The latest data from Refinitiv Lipper showed that overall fund flows amounted to net ouflows of €12.4 billion in January. Of the asset types, equity funds were the best-selling, recording net inflows of €38.6 billion in the same month.Detlef Glow, head of EMEA research at Refinitiv Lipper, said: “Despite the deteriorating situation with regard to the Covid-19 pandemic and the sluggish market environment, it was not surprising that January 2022 was, in general, a negative month for the European fund industry.” Promoters of mutual funds “faced outflows” of €38 billion, while promoters of ETFs saw inflows of €25.6 billion, he added.Glow said: “Within this market environment and given the economic uncertainties, it is somewhat surprising that European investors sold money market products, which are normally considered as safe haven investments. As a result, the overall fund flow numbers are heavily impacted by the high outflows from money market products (-€56.3 bn).
Brief: We are all hoping that the pandemic is almost over and the global economy is now on a path back to normal. However, what constitutes the ‘new normal' is uncertain and inevitably such uncertainty creates market volatility. Investors have to figure out where this path is leading them. As tepid as the post-Global Financial Crisis recovery was, the post-lockdown recovery has so far been very fast. Post-2008 high inflation was not an issue but in this cycle it has been higher and stickier. Moreover, demographics, deglobalisation and decarbonisation all suggest that the post-1980 disinflation is a thing of the past and that inflation will settle higher and retain upside risks.This is important because inflation pressures and central bank reaction functions will most likely define the tenor of this business cycle. If higher inflation is the new normal, then central banks are right to implement faster rate hikes.For equity investors this dilemma has so far played out as a rotation from growth to value. Strong economic growth and high inflation suggest upward sloping yield curves. Within equities, this is perfect territory for banks and commodity stocks. The prospect of higher discount rates also suggests the sell-off in technology stocks may have another leg to run.
Brief: Earnings last year jumped to 7.3 billion euros ($8.3 billion), the Paris-based insurer said Thursday in a statement, beating the average estimate in a Bloomberg survey of analysts. The figure was more than double earnings posted for 2020, when the firm booked a 1.5 billion-euro charge due to the pandemic. “Regarding Axa’s fundamentals, we are extremely confident,” Chief Financial Officer Alban de Mailly Nesle said in a call with reporters. “This is what we showed in 2021, and we start the year with confidence. Axa is emerging from a difficult period for insurers, which were hit by simultaneous claims across various industries when the coronavirus pandemic shut down large parts of the economy. Munich Re also reported a profit rebound for 2021, saying Wednesday that profit more than doubled, which will allow the company to return 2.5 billion euros via a share buyback and higher dividend.
Brief: A world economy that’s still recovering from Covid-19 faces new risks from an energy-priceThe pandemic laid bare gaping holes in the reach and quality of health care services, research, and technology. Even though health care has long been fertile ground for investors, Covid-19 has created even more urgency. Allocators, hedge funds, private equity, and traditional managers are now hiring and investing in new resources to uncover a range of opportunities in the sector. This week alone, UBS O’Connor, the multi-strategy hedge fund manager that is part of UBS Asset Management, and Goldman Sachs Asset Management made big moves. O'Connor expanded its healthcare-focused investment team with the hiring of three medical doctors: Jason Bonodio is joining as a portfolio manager, while Robert Sweeney and Adam Sandler are signing on as research analysts. GSAM has formed a new healthcare advisory council, a group of internal staffers and other resources that will provide expertise and insights for the firm’s private investing strategies.
Brief: COVID-19 vaccine sales jumped 44% for Moderna in the final quarter of 2021, and the drugmaker expects demand for booster shots to fuel more growth in 2022. Moderna said Thursday that it has signed purchase agreements for about US$19 billion in sales for 2022 with options for an additional $3 billion that would cover any updated boosters the company is developing. Company leaders told analysts they firmly believe more booster shots will be required next fall, and they expect sales to be greater in the second half of the year. Shares of the Cambridge, Massachusetts, company soared Thursday, even as broader indexes fell after Russia launched a military attack on Ukraine. Moderna booster shots have already been administered to more than 40 million people in the U.S. The company is working to develop several different versions, including one that targets the omicron variant of the virus that started spreading rapidly late last year.
Brief: Industry setbacks have pressured credit metrics, but asset de-risking and the favorable regulatory environment provide a constructive outlook. Regulated U.S.-based utilities have faced a number of headwinds in recent years, from the 2017 Tax Cuts and Jobs Act's negative impact on cash flows to COVID-19 and irregular weather events. These are generally viewed as one-time or transitory issues, although weather events have become more frequent. The transition from carbon-heavy coal generation to renewables is positive for earnings growth but puts structural pressure on credit metrics as debt is utilized to fund new projects. Funds from operations (FFO) to debt, a leverage ratio commonly used in the industry, have declined nearly 500 basis points since 2017 to around 15%, partially due to the issues mentioned above.
Brief: Stocks fell worldwide on Thursday after Russia’s attack of Ukraine sent fear coursing through markets and upped the pressure on the high inflation already squeezing the global economy. On Wall Street, the S&P 500 sank 1% to continue its dismal start of the year, though it was able to moderate its losses after starting the day down 2.6%. The heaviest losses hit stocks in Europe, after officials called Russia’s nearby moves a “brutal act of war,” with the German DAX down more than 4%. Beyond its human toll, the conflict looks set to send prices rising even higher at gasoline pumps and grocery stores around the world. Russia and Ukraine are major producers not only of energy but also grains and various other commodities. War could upend global supplies, as could sanctions brought by the United States and other allies. Oil prices on both sides of the Atlantic jumped toward or above $100 per barrel to their highest levels since 2014, up more than 5%. As with stocks, prices in Europe swung more sharply than in the U.S. Wholesale prices also shot higher for heating oil, wheat and other commodities. The spot price in Europe for natural gas, for which the continent relies on Russia to supply, jumped as much as 31%.
Brief: A recent study conducted by Forrester Consulting on behalf of intelligent pricing platform, Flintfox reveals that retail, manufacturing and consumers goods companies are facing fundamental challenges in managing their profit margins, due to the ongoing impact of COVID-19, inflation and supply chain issues. 90% of businesses report that COVID is having a critical impact on the ability to manage pricing across their product range, with 39% stating they are unable to keep up with the scale of real-time price fluctuations in the market. This is having a significant effect; with businesses losing on average $1m a year in lost profitability due to their inability to respond quickly enough to market forces. The study of over 900 business leaders has revealed that existing business models prevent them from managing the pace of change, with 41% still relying on manual processes to manage price fluctuations. Over half (53%) state that the pandemic has forced them to need better visibility into business performance on profitability and margins to respond accordingly.
Brief: A world economy that’s still recovering from Covid-19 faces new risks from an energy-price spike as the standoff between the West and Russia escalates. The U.S. and its European allies unveiled limited sanctions on Tuesday, in response to Russian President Vladimir Putin’s decision to recognize two breakaway republics in eastern Ukraine, and warned that tougher penalties may follow. Russia, whose troops are massed around Ukraine, says it has no plans for a full-scale invasion. The crisis has driven oil prices toward $100 a barrel and sent tremors through other commodity markets too, threatening another wave of price pressures on top of already-high pandemic inflation. Russia is a commodities powerhouse and a key supplier of energy to Europe. Western nations are caught between the desire for harsh sanctions to deter Putin, and concern that they’ll suffer blowback themselves. For now, Europe and the U.S. have shied away from blocking Russia’s energy exports, or freezing it out of dollar-based finance. Even so, U.S. President Joe Biden warned Americans Tuesday that there’ll be a price to pay at gasoline pumps back home.
Brief: Fraud and error on the U.K.’s coronavirus support programs is expected to cost British taxpayers as much as 15.7 billion pounds ($21.4 billion), an influential panel of lawmakers said, calling on the government to ensure transparency around ongoing costs associated with the pandemic. Some 5.3 billion pounds of cash lost through fraudulent or mistaken claims is estimated to have been in Chancellor of the Exchequer Rishi Sunak’s flagship furlough program, the cross-party Public Accounts Committee said in a report published Wednesday. That’s 8.7% of payments made under the program, which paid idled workers as much as 80% of their wages. Other loans and grants programs added to what the panel branded as “unacceptable” losses. The government has spent 261 billion pounds on 374 different measures tackling Covid so far, according to the panel. That is expected to reach 370 billion pounds over the lifetime of the measures, with some loan repayments not due for two decades. It pointed also to other losses, including 21 billion pounds of loans that the government doesn’t expect to ever be repaid.
Brief: There are two things that give Marko Kolanovic confidence in his bullish stocks call for 2022, even after a difficult start to the year for financial markets, with rising inflation and Russia-Ukraine tensions. The co-head of global research at JPMorgan Chase & Co. has been asserting for some time that investors should buy dips in stocks -- but now he sees the acute pandemic phase of Covid nearing an end and better times ahead from China, which he expects to offset Federal Reserve tightening. And he sees scope for significant rotation within equities as these changes take place. “Our base case is the end of the pandemic completely,” Kolanovic said in an interview. “During the spring and summer we will have a very strong recovery because omicron is in fast decline and now the immunity rates are really, really high.” He added that when looking at pandemics in the last century, they lasted about two years and maybe three to four waves, “and then for the next 10 to 20 years nothing. We think we’re basically at that point, two-plus years of pandemic, we’ve had the four major waves. And so we think now maybe we’ll be fine for the next 10 or 20 years.”
Brief: Fiera Real Estate UK (FRE UK) has held the final close of Fiera Real Estate Opportunity Fund V (FREOF V) at GBP180 million. FREOF V is the fifth and largest Fund in the Firm’s value add series which has raised over GBP780 million to date. The firm launched FREOF V in November 2019 to take advantage of the unprecedented transitional buying opportunities created by Brexit and the Covid-19 pandemic. The fund is targeted to deliver a 15 per cent total net IRR to investors with little to no leverage. The GBP180 million came from both UK and overseas investors, which, coupled with its successful close during the pandemic, reflects the resilience of UK real estate as an asset class and increased global investor confidence in the UK market.
Brief: As competition in private credit heats up, larger managers have begun to squeeze their smaller and newer competitors out of the market. While private credit funds reached a new fundraising record in 2021, less established managers generally had to settle for a smaller piece of the pie. Forty-two percent of capital raised by private credit managers last year was taken in by the ten largest funds, according to Charles McGrath, author of Preqin’s latest Global Private Debt report. The private debt industry has seen continued growth in assets under management since the onset of the pandemic. Distressed debt, for example, was a big hit for investors interested in betting on a wave of corporate defaults caused by Covid-19. As the market matures, however, the rules of the game are being rewritten by the bigger players. “Just as we see in private equity, experience is a big draw for investors,” McGrath said. “Experienced managers generally raise larger funds and also take a larger share of the market.”
Brief: Allianz is close to agreeing settlements with the major investors in its failed Structured Alpha hedge funds, which failed during the early days of the global pandemic, according to a report by Bloomberg. Speaking in an interview on Bloomberg TV, Chief Financial Officer Giulio Terzariol, said: "We achieved an agreement with the majority of the investors. There are still ongoing conversations with remaining plaintiffs. We are in conversations with the US Department of Justice, and this conversation is very constructive." Blue Cross & Blue Shield and New York's Metropolitan Transportation Authority as well as other pension funds are among the investors to have brought multiple lawsuits against Allianz over the failure of the funds, leading the German insurer to last week announce that it would take a EUR3.7 billion charge in relation to the legal action and regulatory investigations.
Brief: HSBC, the biggest lender in Hong Kong, has donated HK$100 million (US$12.8 million) to help low-income households hit hard by the Covid-19 outbreak, the biggest so far by the city's financial sector. The lender has joined a slew of companies, including Bright Smart Securities, Futu Securities, Ant Group and FWD, which over the past week have offered support ranging from monetary donations, testing kits and other assistance to the city facing record infections nearly every day amid the fifth wave of the coronavirus outbreak. The Hongkong Bank Foundation, the bank's charitable arm, has teamed up with the Hong Kong Red Cross to help households who need to undergo compulsory home quarantine because of infections among family members or lockdowns of residential buildings for tests.
Brief: After hitting records in 2021, deal-making looks like it may be coming down to earth this year. In 2021, the total value of mergers and acquisitions reached an all-time high of $5.9 trillion, up from $3.7 trillion the year before, according to a report on global M&A in 2022 from Bain Consulting. In January, however, the number of M&A deals declined for the first time in almost two years, according to data from II’s sister company, BCA Research. In a daily briefing, BCA noted that the dimming M&A outlook is a result of decelerating economic growth, sluggish equity returns, rising interest rates, and strong regulatory headwinds. “The environment is now less conducive for mergers and acquisitions,” according to BCA. “This is compounded by the fact that the number of M&A deals over the past 12 months far exceeds previous peaks, which raises the likelihood that dealmaking activity experiences a mean reversion.”
Brief: Business leaders and unions have warned the government that scrapping free Covid tests in England and watering down sick pay will discourage workers from self-isolating and could damage the economy. Although welcoming Boris Johnson’s ambition to ease restrictions almost two years into the pandemic, company bosses said the prime minister’s newly unveiled “living with Covid” strategy came with major risks and could do more harm than good. Claire Walker, co-executive director of the British Chambers of Commerce (BCC), said the changes inched companies closer to pre-pandemic conditions. “However, for many firms, this move will not be without its challenges, and government must not pass public health decisions on to the business community, who are not public health experts.”
Brief: The prolonged era of ultra-low interest rates has pushed many investors into riskier "high-yield" assets. Older investors who are at or near retirement have never had as high allocations into risk assets as they do today. This issue has only worsened with inflation which has lowered real yields to unprecedented levels. At the same time, the global economy is slowing at a faster-than-expected pace, and, finally, interest rates are starting to rise back to normal levels. Today, investors face an undoubtedly odd set of market conditions with a multitude of both inflationary (supply & labor shortages) and deflationary forces (extreme public and private debt). In such an environment, high-risk assets, particularly credit assets, can easily lose most of their value if market conditions continue to sour. Thus far, most riskier credit assets have failed to hold their weight, given the rise in interest rates. This issue can already be seen in the breakdown of popular riskier-credit funds such as PIMCO Dynamic Income Fund (PDI).
Brief: UK retail sales increased by 1.9% during January following a 4% fall in December, according to figures released today (18 February) by the Office for National Statistics, with home improvements significantly contributing to the uptick. While non-food items provided the biggest bump, having risen by 3.4% during the month, food store sales volumes fell below pre-Covid levels for the first time, dropping 0.8% below where they were in February 2020. Sales volumes across the piste were 3.6% above their pre-pandemic levels, although 76% of consumers say they can now feel the impact of rising inflation. Neil Birrell, chief investment officer and fund manager on the Premier Miton diversified fund range, said given the rise in inflation and borrowing costs, as well as spikes in energy prices and tax increases, "we are likely to see some patchy data in the coming months".
Brief: More people are choosing to work from home because they want to, even if their office is open and they’re less concerned about Covid risks, according to new findings from Pew Research Center. According to a January survey of 5,889 workers, 61% of people working from home today say they’re not going into their workplace because they don’t want to, and 38% say their office is closed. It’s a reversal from October 2020, when 64% of people were working from home because their office was closed, and 36% were doing so out of preference. Even as more offices open up, “people are making a conscious choice to work from home, rather than just out of necessity,” says Kim Parker, Pew’s director of social trends research. Teleworkers say they’re choosing to stay home for better work-life balance, productivity or because they’ve relocated away from the office. Fewer people say Covid is the main reason why they’re working from home (42% now vs. 57% in 2020).
Brief: An uneven economic rebound is complicating discussions among finance chiefs and central bank governors of the world’s biggest economies as they meet this week to navigate a fragile global recovery. “Some are facing this with high growth and inflation, so they have to adjust their policy domestically, but at the same time other countries are still left behind,” Indonesia’s Finance Minister Sri Mulyani Indrawati told Bloomberg Television’s Yvonne Man and Haslinda Amin in an interview Friday from the sidelines of the Group of 20 meetings. “That can create an environment for policy that is not easy.” Indonesia, which is taking the helm of the G-20 for the first time, is seeking to release a communique when the meeting ends Friday that can address equal access to financing and ensure the transition to renewable energy can be affordable to all countries. An uneven economic rebound is complicating discussions among finance chiefs and central bank governors of the world’s biggest economies as they meet this week to navigate a fragile global recovery.
Brief: British-based, Asia-focused bank HSBC has closed down several floors of its landmark main Hong Kong office from Friday after several staff tested positive for Covid-19. The closure comes as Hong Kong’s business and financial institutions react to a coronavirus outbreak that is growing rapidly despite a so-called “dynamic zero” government policy that calls for suppression rather than containment of the virus. Health officials are expected to a record 3,600 new cases on Friday, with a further 7,600 testing preliminarily positive. People who test positive in Hong Kong for the virus are sent to public hospitals for isolation while their close contacts are ordered to isolate for 14 days, sometimes in austere government facilities. HSBC said that it would temporarily close the BL1, L3, L5 and L6 levels of its headquarters in Hong Kong’s Central district. The bank did not indicate how long the closure would last or how it would affect operations in the iconic Norman Foster-designed tower in the heart of Hong Kong’s Central district.
Brief: The Covid pandemic had a massive effect on the global commercial real estate market. The preliminary success of return to work continues to decline as new Covid-19 variants emerge, making a mass return to work more unlikely, while the retail industry is taking big hits from e-commerce and the expansion of home delivery services. Despite the outlook, a number of real estate sectors give reason for optimism, one of those is life sciences real estate. With the market already seeing strong demand conditions attributed to an ageing population, rising healthcare spending, and enthusiastic venture capital investments, the start of the pandemic has only accelerated this growth. The rapid development of several effective Covid-19 vaccines led to a significant increase in capital focusing on the life science office sector. Research and development of vital medicines, as well as increased testing and treatments to tackle Covid-19, have also boosted occupancy levels.
Brief: The Great Resignation improved in most U.S. states in December but worsened in eight, with Alaska, Virginia and Ohio seeing the largest increases in their quits rates. The quits rate -- or the number of quits as a percent of total employment -- fell in 36 states and the District of Columbia in the final month of 2021, according to Labor Department data released Thursday. Six states saw no change. Meanwhile, the quits rate in Alaska rose 1.6 percentage points at the end of 2021 to 5.5% and jumped 0.7 point to 3.3% in Virginia. With a near-record number of job openings nationwide, the number of Americans voluntarily leaving their jobs has surged. Those leaving can often secure a job with better pay, more flexibility or both. The unemployment rate has fallen to 4% nationally, and companies have bid up wages in an attempt to attract and retain employees. While all states have struggled with similar issues, the extent of the problem differs by location. Thirty-four states had higher quits rates than the national figure of 2.9% in December. North Carolina, Illinois and Georgia saw the largest decline in the number of people quitting in the month.
Brief: Market watchers are optimistic that Hong Kong’s plans for mass Covid-19 testing could stem the resurgence of virus cases, with stocks tied to economic reopening advancing in a volatile session Thursday. Leveling out daily infections could ultimately lay the groundwork for an eventual reopening - even if that seems far away, they say. Hong Kong is intensifying efforts as the latest outbreak rips through the city, with local media reporting about 5,000 new Covid cases on Thursday. While broader markets in the financial hub and in Asia were whipsawed by renewed geopolitical tensions over Ukraine, shares of Macau casino operators and cosmetics makers climbed in Hong Kong. Further gains could help broaden the rise in the MSCI Hong Kong Index, which has rallied more than 8% since a December low, among the top-performing stock benchmarks in Asia. The advance was boosted by financials, which make up about half of the gauge’s weighting, amid a surge in global bond yields.
Brief: U.S. Treasury Secretary Janet Yellen urged her counterparts from leading industrialized countries to support the establishment of a new World Bank fund intended to prevent and prepare for future global health crises. A new “financial intermediary fund” under the auspices of the World Bank would help address gaps in preparedness, particularly among low-income countries, Yellen said, according to prepared remarks she’s scheduled to deliver virtually on Thursday to a meeting of finance ministers and central bank governors from Group of 20 countries. “We don’t see this as a pool of money that sits idly waiting to respond to the next pandemic,” Yellen said. “It will be used in the near term to incentivize countries to make investments to fill existing gaps in their ability -- and our collective capacity -- to prevent and prepare for the next crisis.”
Brief: Prime Minister Justin Trudeau’s emergency orders aimed at cutting off funds to protesters have cast a wide net across the Canadian financial industry, forcing portfolio managers and securities firms to take a harder look at who they are doing business with. The new rules make demands of a broad list of entities — including banks, investment firms, credit unions, loan companies, securities dealers, fundraising platforms, insurance companies and fraternal benefit societies. They must determine whether they’re in “possession or control of property” of a person who’s attending an illegal protest or providing supplies to demonstrators, according to orders published by the government late Tuesday night. If they find such a person in their customer list, they must freeze their accounts and report it to the Royal Canadian Mounted Police or Canada’s intelligence service, the regulations say. Any suspicious transactions must also be reported to the country’s anti-money-laundering agency, known as Fintrac.
Brief: Finnish software maker Relex Solutions raised 500 million euros at a valuation of 5 billion euros ($5.7 billion) in a funding round spurred by demand from retailers suffering from supply-chain disruptions. Relex’s artificial intelligence products let businesses such as grocery stores forecast which products to buy, in what quantities, and where best to allocate space for the inventory in stores and warehouses. “Global supply chain disruptions were one of the reasons why we decided to do the round, to enable us to grow,” Relex Chief Executive Officer Mikko Karkkainen said in an interview. “The past couple of years have shown many companies vulnerabilities in their supply and value chains.” Relex said in a statement Thursday that it has about 1,300 employees, and the CEO said the company will use some of the money raised to hire hundreds more across roles in software development, marketing, customer support and delivery.
Brief: The global pandemic continues to significantly impact investment strategies among global asset managers, according to new research from Clearwater Analytics (CWAN). A poll of over 140 asset managers and owners representing more than USD5 trillion in AUM showed more than a third of investors investment strategies will change this year in response to Covid. The study asked how investment strategies had changed since the start of the pandemic, and how this compares to what they have planned for 2022 in the wake of the recent omicron surge. At a macro level, 58 per cent of companies reported making changes to their strategy two years ago, albeit only 13 per cent said the change was material. Looking forward from today, 33 per cent plan further changes to their strategies and 5 per cent said they will be material changes.
Brief: While Wall Street banks press employees to return to the office this month, its regulators in Washington are largely sticking with a flexible approach to remote work. The U.S. Securities and Exchange Commission, which has a staff of about 4,500, pushed back until June 6 its earliest date for requiring employees to return, according to a person familiar with the plans. The Federal Reserve in Washington remains mostly in a remote posture, and at the Office of the Comptroller of the Currency, no final decision has been made on when workers will be called back on a mandatory basis. At other agencies across the government, employees are largely still working from home. Meanwhile, financial giants from Citigroup Inc. to Goldman Sachs Group Inc. have pressed to bring back staff this month after a nationwide surge in coronavirus cases at the end of last year and in the early weeks of this year.
Brief: Conditions at most of the world’s large meat, fish and dairy producers are said to be “incubating” future pandemics, according to a report by the FAIRR Initiative. An assessment of the industry as part of the organisation's Emerging Disease Risk Ranking found that 63% of animal protein producers are failing to take the necessary steps to prevent future zoonotic pandemics. Jeremy Coller, chair of the FAIRR Initiative, said: "Business-as-usual animal agriculture risks incubating the next zoonotic pandemic, posing both an intolerable investment risk and a threat to global public health. The sector must improve rapidly, starting with welfare conditions for animals and workers." FAIRR highlighted that three out of four new diseases are zoonotic ones like Covid-19, which means they have jumped from animals to humans.
Brief: Inflation in the UK rose to 5.5% in January, up from 5.4% in December 2021, continuing the streak of reaching the country’s highest inflation rate in thirty years. The Office for National Statistics said that the 12 month UK Consumer Price Index was at the highest level since records began in January 1997 and was last higher in the historical modelled series in March 1992, when it stood at 7.1%. The ONS said that the largest contributors to rising inflation came from clothing and footwear, furniture and household goods, food and non-alcoholic beverages, and alcohol and tobacco. It also credited the price rises for gas and electricity following the increase in the cap on energy prices. In contrast, the ONS said it saw large downward contributions to change from restaurants and hotels, and transport.
Brief: Investors are betting on the fastest pace of interest-rate hikes since 2010 across the world’s biggest developed markets, pressuring policy makers who want to slow inflation without crash landing their economies. That’s the backdrop to this week’s meetings of central bank chiefs and finance ministers from the Group of 20 nations, who hold virtual and in-person discussions in Jakarta on Thursday and Friday, their first gathering of the year. It’s a remarkable turnaround from when they last met in October, a period when Federal Reserve Chair Jerome Powell was still describing inflation as “transitory” and markets were pricing in at most two Fed rate increases this year. Now, six Fed hikes are priced in.
Brief: The first year of the COVID-19 pandemic fueled a frenzy for biotechnology stocks. Now, with vaccines in millions of arms and the Omicron variant on the wane, there are signs investors are ready to move on. After cresting at nearly $5 billion a month in early 2020, inflows into health care funds have slowed to a more modest $800 million a month, according to data compiled by Bloomberg Intelligence. While that suggests that a healthy appetite for the shares of vaccine makers and other drug companies remains, the excitement—and fear—stoked by the early days of the pandemic has subsided. What's more, those who embraced the shares of riskier drug makers have taken their lumps of late. The Nasdaq Biotechnology Index, the most widely watched gauge of the sector's performance, has lost 26% since hitting a 52-week high on Aug. 9 including a decline of 1% as of Monday at 9:55 a.m. The SPDR S&P Biotech, or XBI, an exchange-traded fund that specialists use to track the industry’s performance, has plummeted about 42% over the past year.
Brief: Karthik Sarma outearned Steve Cohen last year. The little-known hedge fund manager made an estimated $2 billion in 2021, mostly thanks to an 11-year-old wager on Avis Budget Group Inc., a bet that paid off handsomely as the stock soared 456%. Sarma, it’s safe to say, isn’t your stereotypical, fleece-vested Manhattan hedge fund manager. When the pandemic struck, he didn’t flee to the Hamptons, Palm Beach or Aspen like many other Wall Street elites. Instead, he moved in with his sister and her family, living in their modest home in a middle-class New Jersey suburb, where the houses sit side by side -- and there’s only room for two cars in the driveway. Sarma, 47, runs his firm differently, too. At SRS Investment Management, he avoids the hefty leverage many other funds embrace, and runs a much more robust short book. Moreover, he isn’t afraid to go big on a single investment — and hang on for as long as it takes.
Brief: There’s nothing like a good dose of volatility to get allocators once again thinking about hedge funds. Investors had hedge funds on their minds well before the market rout this year. About half of U.S. allocators plan to increase their investments in hedge funds in 2022, according to the latest report by the Alternative Investment Management Association. In December, the group surveyed 224 allocators across the country, with 49 percent working at foundations and endowments, 15 percent at public pensions, and 11 percent at family offices. While private equity remains the top choice of investors, hedge funds have begun to attract some attention again, according to the AIMA report. “Three years ago, many institutions were indeed adjusting their alternatives portfolios away from hedge funds. And often doing so vocally. They were making space for larger allocations to the likes of private credit and real assets,” the report said. “While the trend toward illiquid opportunities remains, we anticipate some positive changes with a renewed focus on hedge funds this year.”
Brief: Mid-market private equity investment rebounded "spectacularly" in the Midlands during 2021, according to the latest figures from KPMG. The findings, which track deal flow and sentiment, show 2021 generated an upturn in both deal volume and value when compared to 2020. The region experienced an increase of 54 per cent in volumes with a total of 86 deals completed, up from 56 in 2020. Additionally, the Midlands leapfrogged the North West to become the second largest region by deal value at £5.3bn, up from £3.5bn. The number of private equity exits completed in the Midlands also increased from 17 to 25, further surpassing 2019 levels of activity and ranking the region second only to London. Alongside this, the value of Midlands-based exit deals also accelerated to £2.5bn, a 133 per cent increase from £1.1bn. Khush Purewal, partner and head of deals for KPMG in the Midlands, said: "Mid-market private equity deal activity rebounded spectacularly in the Midlands during 2021, as confidence to complete transactions returned and pent-up demand was released.
Brief: During the worst throes of the COVID-19 pandemic, very few people could travel. Meanwhile, both 2021 and 2022 were predicted to be the years of “revenge travel” where people would do a great deal more. Or at least plan more. In the background was a site that allowed people to travel virtually, either out of sheer interest, or to plan their own travel. Heygo’s live tours are live-streamed by, it says, tour guides in more than 90 countries and counting. Think “Twitch, but for travel”. It’s clear that plenty of people cottoned-on to the site and its usefulness during the pandemic, because Heygo has now raised a $20 million Series A funding round, led by Northzone. Also Participating was Lightspeed Venture Partners, Point 9 Capital, TQ Ventures and Ascension. Heygo is tapping into a different kind of creator economy. Their guides can share the places and subjects they love on their own live channels with a global audience while earning money via tips. It’s managed to hit a 300% growth in bookings this January over last year, and recently hit the 2 million bookings mark, claims the company.
Brief: Baker Steel Capital Managers LLP, a large resource investment fund based in London, boosted its stake in Canadian miner Iamgold Corp. by nearly 40 per cent in 2021, reasoning that there was value to be unlocked in the gold miner with operations in Canada and Africa. So it came as a shock to Mark Burridge, chief executive and managing partner of Baker Steel, when news broke last month that Iamgold’s chief executive, Gordon Stothart, was leaving abruptly after less than two years in the top job. “When the announcement came with the CEO leaving, yeah, we got a little bit uncomfortable,” Burridge said in a recent interview. “We’re not the guys who build the big position just to then, you know, knock on their door and say, ‘Hey, you know, we’re the big shareholders, you need to do what we say.’ That’s not our style at all.” But with a 2.8 per cent stake in hand as of the end of 2021, they felt they had to do something, so they contacted management and the board with suggestions on how to turn the company around. They weren’t alone.
Brief: As a virus-weary world limps through the third year of the outbreak, experts are sending out a warning signal: Don’t expect omicron to be the last variant we have to contend with — and don’t let your guard down yet. In the midst of a vast wave of milder infections, countries around the world are dialing back restrictions and softening their messaging. Many people are starting to assume they’ve had their run-in with Covid-19 and that the pandemic is tailing off. That’s not necessarily the case. The crisis isn’t over until it’s over everywhere. The effects will continue to reverberate through wealthier nations — disrupting supply chains, travel plans and health care — as the coronavirus largely dogs under-vaccinated developing countries over the coming months. Before any of that, the world has to get past the current wave. Omicron may appear to cause less severe disease than previous strains, but it is wildly infectious, pushing new case counts to once unimaginable records.
Brief: The first year of the Covid-19 pandemic fueled a frenzy for biotechnology stocks. Now, with vaccines in millions of arms and the omicron variant on the wane, there are signs investors are ready to move on. After cresting at nearly $5 billion a month in early 2020, inflows into health-care funds have slowed to a more modest $800 million a month, according to data compiled by Bloomberg Intelligence. While that suggests that a healthy appetite for the shares of vaccine makers and other drug companies remains, the excitement — and fear — stoked by the early days of the pandemic has subsided. What's more, those who embraced the shares of riskier drugmakers have taken their lumps of late. The Nasdaq Biotechnology Index, the most widely watched gauge of the sector's performance, has fallen 25% since hitting a 52-week high on Aug. 9. The SPDR S&P Biotech, or XBI, an exchange-traded fund that specialists use to track the industry’s performance, has plummeted 44% over the past year. Over the same span, the broader market has been climbing, with the S&P 500 up 13%.
Brief: January was the worst month for public stocks since March 2020 as investors wrestled with inflation fears. In contrast, the value of private companies, by a number of measures, held far steadier last month. The comparison is an important one, given that more companies are choosing to stay private longer — and a record number of them reached the $1 billion “unicorn” valuation mark last year. Of course, by definition, private companies are less volatile. They don’t trade in the same way as public securities on exchanges where their prices fluctuate in real-time. Instead, committees or outside firms calculate private company valuations based on the performance of public peers and other metrics on a quarterly basis. Valuations can also be plucked from a company’s most recent funding rounds. Many experts argue private companies are just as volatile as public stocks, but the risk is hidden from view.
Brief: JPMorgan Chase & Co. said fully vaccinated staff no longer need to wear masks anywhere in its U.S. buildings, amid an easing up in Covid-19 cases that’s paved the way for Wall Street staff to return to offices. The biggest U.S. bank said in a memo to employees that masks are now “completely voluntary” unless there are more stringent local restrictions in place. Unvaccinated staff or those that have chosen not to disclose their status will need to wear a mask, apart from when they’re at workspaces or eating and drinking. “With Omicron cases declining in many U.S. locations, and expected to continue to decline, vaccine boosters and treatments more readily available, and a large percentage of our workforce vaccinated, we are continuing to make adjustments to some of these safeguards,” the bank said in the memo.
Brief: For much of the past two years, money managers were handing out credit to just about anyone that asked for it: Tech startups with no profit. Cruise companies struggling to navigate a pandemic. Retailers that rely on fading malls. But in less than two months, the carefree days of ultra cheap credit have shown signs of coming to an end. Central banks around the world that pumped trillions of dollars into markets to keep economies afloat are now rushing to scale back the liquidity and fend off inflation. Those efforts could be hastened after U.S. Labor Department data on Thursday showed higher-than-expected price increases in January. Across debt markets, borrowing has gotten harder for the riskiest companies and more expensive for even the most creditworthy. Orders for new U.S. investment-grade notes are dropping. Rogers Communications Inc., a Canadian wireless company, last week scaled back its ambitions on a $750 million bond offering that was initially contemplated at $1 billion, and ended up paying more interest than it expected, according to a person with knowledge of the deal.
Brief: Collateralized loan obligation managers in Europe are preparing for the post-pandemic world of rising credit risk by adding more flexibility to their traditionally strict structures. CLOs -- which package speculative debt into bonds -- have been including options to participate in restructurings and remain involved in financings even if they go south. And while managers don’t expect a sudden deterioration of junk-rated loans and bonds anytime soon, with defaults in Europe still historically low, they want to be prepared in case things sour. “With the ability to follow their money, CLOs now have better options to sell out if they have significant concerns on poor recoveries or provide new money and benefit from the potential upside of any turnaround,” said Oliver Harker-Smith, a portfolio manager at Barings in London. CLOs historically had strict checks on their documents regarding the risks they were able to take. This meant that more often than not they were forced to sell their positions in situations when borrowers got distressed.
Brief: Over the last number of months some of the most popular stocks of 2020 and 2021 plummeted as their figures failed to impress, with Netflix, Peloton and Spotify all seeing share prices tumble. One thing they all have in common is the subscription model. This has led experts to question whether those models can continue to succeed particularly when consumers are facing a cost-of-living squeeze and there is substantial competition sitting in the wings. "Companies which saw high demand for services as the pandemic took hold like Peloton, Spotify and Netflix have suffered because they have not been able to hook customers in for the long haul as much, as economies have opened up and other forms of socialising have taken over," explained Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown. "They are seen more as one trick ponies, offering either TV streaming, gym classes or audio on demand."
Brief: UK GDP rose 7.5% over the course of 2021, defying the year’s three-month opening lockdown and emerging variants to record the highest rate of growth since 1940. This increase followed a record 9.4% decline in 2020, as a result of the onset of lockdowns and the pandemic. Despite a variety of restrictions across the home nations, GDP only dropped slightly in December, down 0.2% for the month, less than the consensus 0.5% expectations. Emma Mogford, fund manager at Premier Miton Investors, described this as an "encouraging sign for the health of the economy", adding the "self-imposed protect Christmas" lockdown had only a "mild impact" on December growth. Daniel Casali, chief investment strategist at Tilney Smith and Williamson, agreed, suggesting that with restrictions lifted, the economic outlook is "constructive" for 2022.
Brief: Since the pandemic erupted two years ago, Forest Ramsey and his wife, Kelly, have held the line on prices at their gourmet chocolate shop in Louisville, Kentucky. Now, they're about to throw in the towel. In the past year, the costs of ingredients for their business, Art Eatables, have surged between 10% and 50%. The Ramseys are paying their employees 30% more than they did before the pandemic. And in the face of supply shortages, their packaging costs are up. They've begun using 12-piece trays in their eight-piece chocolate boxes because they can no longer get any eight-piece trays. So having just tried to survive for the past two years, the Ramseys, who own three retail outlets and sell custom chocolates to about 25 bourbon distilleries, have reached an unpleasant decision: They're going to raise their customer prices 10% to 30%. “We’ve got to adjust this — we can’t afford to keep taking the hits anymore,” Forest Ramsey said.
Brief: Consumer prices surged more than expected over the past 12 months, indicating a worsening outlook for inflation and cementing the likelihood of substantial interest rate hikes this year. The consumer price index for January, which measures the costs of dozens of everyday consumer goods, rose 7.5% compared with a year ago, the Labor Department reported Thursday. That compared with Dow Jones estimates of 7.2% for the closely watched inflation gauge. It was the highest reading since February 1982. Stripping out volatile gas and grocery costs, the CPI increased 6%, compared with the estimate of 5.9%. Core inflation rose at its fastest level since August 1982. The monthly CPI rates also came in hotter than expected, with headline and core CPI both rising 0.6%, compared with the estimates for a 0.4% increase by both measures.
Brief: Oil recovered from earlier losses as soaring U.S. consumer prices prompted traders to pour into commodities as a hedge against inflation. Futures in New York rose as much as 2.3% on data that showed U.S. inflation rose to a four-decade high. Central banks are under pressure to tame higher consumer prices, boosting the chances of further interest-rate hikes. While equities dropped after the U.S. data was released, oil is viewed as a safer bet as the dollar loses purchasing power. “When you have an inflationary period, that’s generally good for commodities,” said Stewart Glickman, energy equity analyst at CFRA Research in New York. “As a physical commodity, oil tends to hold its value better. Oil and gold are now seen as safer havens while other assets are being inflated out.” Also keeping crude afloat are the market’s consistent signals of tight supplies. U.S. crude stockpiles fell to the lowest since 2018 last week. Geopolitical tensions remained a supportive factor as Russian forces started joint military exercises in Belarus that include drills near the border with Ukraine.
Brief: Only seven of the 28 largest Chinese quant hedge fund managers – those managing more than CNY10 billion – generated positive returns in the last quarter of 2021, according to a report in The Wall Street Journal. High-Flyer Quant took the biggest hit losing an average of more than 11 per cent across its funds and made a public apology to investors as a result, citing problems with its algorithms and rapid industry growth for the setback. By comparison, seven of the 28 generated cumulative returns of more than 100 per cent over the past three years according to fund distributor Simwuang. And the company predicts that as Chinese quants increasingly trade against each other, the opportunities to generate excess returns will dwindle.
Brief: After the long slog of the pandemic, we were hoping we would be able to welcome some of our clients in person at our annual conference last week. In fact, we had planned ourfirst ever hybrid conference, with attendees joining us in London and more participating remotely from their homes and offices. But as we have learnt repeatedly over the past couple of years, the virus has no respect for our plans. When Omicron hit and the government confirmed the extension of plan B measures in early January, we reluctantly took the decision to move the whole thing online. Fortunately, another thing that has happened over the past couple of years is that technology has made advances that might otherwise have taken a decade. I cannot deny that the experience of speaking on stage in an almost empty auditorium was a strange one. But, thanks to innovations made by our virtual event partner, many of the small but vital interactions that delegates experience when they attend conferences in person were still possible. Almost four times as many delegates attended online as could have been accommodated in the venue.
Brief: Most of Wells Fargo & Co's employees, including those in customer-facing roles, will return to their offices on March 14 and work under a hybrid flexible model, according to a company memo seen by Reuters on Wednesday. The bank had delayed plans to bring its staff back to the office in December, citing "changing external environment" amid the spread of the Omicron coronavirus variant. At the time, it had said it would announce plans for a full return in the new year. The San Francisco-based bank's announcement comes a little over a week after Goldman Sachs Group Inc ushered its U.S.-based staff back to the office with several of its rivals set to follow a similar return this month as the number of COVID-19 cases drop. Contact center employees and those in operations will return shortly after staff employees resume work from office, the memo said, adding that there is no change to the work schedules for essential employees.
Brief: Unless your name is Meta (FB) or Peloton (PTON), the fourth quarter earnings season has been surprisingly kind to corporate America. Leaving the beleaguered social network (whoops, I mean metaverse pioneer) and fitness brand aside, Q4 results have continued to post strong growth in the face of the Omicron variant of COVID-19, skyrocketing inflation and supply chain headwinds. The latest of the encouraging batch of results came from Chipotle (CMG), which expects to top 7,000 restaurants in North America this year, continuing to ride the COVID-19 era trend of digital orders that accounted for around 42% of Q4 sales, Yahoo Finance’s Brooke DiPalma reported on Tuesday. The closing chapter of 2021 saw S&P 500 growth up over 23%, with nearly 80% of companies beating earnings estimates, according to S&P Global data. That’s been just enough to mollify an incredibly jumpy market where investors are struggling to adjust to the impending end of cheap money.
Brief: The financial markets were battered by extreme volatility in January, but macro hedge funds saw strong, negatively correlated gains in the choppy environment, according to a Hedge Fund Research report. “In 2021 and 2020, higher beta strategies were the best performing strategies; risk-on dominated over that period of time,” Kenneth Heinz, president of HFR, told Institutional Investor. “January was the opposite of that — equities declined, fixed-income declined, and commodities were up.” Heinz said that compared to most investment methodologies, macro strategies generally produce the lowest returns, but their relatively low correlation to short-term market movements can make them a perfect antidote to a tough, volatile market environment like the one seen in January. HFR’s macro index gained 0.85 percent in January, and the HFRI 500 Macro Index grew 1.35 percent.
Brief: The pandemic has been transformational for many businesses, but few can boast near-global domination the way Pfizer (PFE) can. The Pfizer/BioNTech (BNTX) vaccine accounts for 70% of all doses in the U.S. and E.U., as of February 5, according to CEO Albert Bourla Tuesday. He added that the vaccine and other Pfizer medicines reached 1.4 billion patients in 2021, or about one in six people on Earth. As a result, the company saw a 92% increase in operational revenue growth in 2021 alone, of which only 6% was not related to its COVID-19 vaccine, Comirnaty, or it oral treatment, Paxlovid. "This year, we'll do 5% operating growth, excluding COVID and Paxlovid," said CFO Frank D'Amelio. But that didn't seem to sway investors Tuesday, as the company's stock took a hit on news that it would miss revenue estimates for the upcoming year. But Bourla said the company sees sustained need for the vaccine and oral treatment, which supports the 2022 outlook.
Brief: The top risks facing global economies are supply chain disruptions, easing central bank policy and new Covid variants, according to a survey of international fund selectors carried out by Natixis Investment Managers. The 436 global fund selectors expect to "battle a difficult market landscape" in 2022 as inflation hits 30-year highs, central banks across the globe withdraw stimulus, while client expectations "exceed realistic returns", the survey found. Between them, the fund selectors - based in 23 countries across Africa, the Americas, Asia and Europe - manage a combined $12.6trn in client assets. Half of them are concerned about the impact of supply chain disruptions to the global economy, while 45% said less supportive central bank policy is a top economic risk. Meanwhile, recent disruptions caused by the Omicron variant of Covid-19, such as frontline labour shortages, prompted 40% of the fund selectors to rank new Covid variants as a key cause for economic concern in 2022.
Brief: Investors in Europe are less optimistic than they were in the autumn of last year, with rising interest rates and inflation among the biggest concerns, according to the latest UBS Investor Sentiment survey. The decline in optimism is, however, from a relatively high base. The survey by UBS showed that in Europe, excluding Switzerland, investor optimism has fallen nearly 10 percentage points since the previous survey in the third quarter of last year, with 68% of European investors feeling optimistic about the region’s economy in the short-term.Short-term optimism in stocks has also fallen, with 43% planning to invest more in the next six months. Switzerland bucked the wider European trend. Swiss investor optimism is up from last quarter, with 68% feeling optimistic about their economy in the short-term, a 12 percentage points increase from the previous survey.Among Swiss investors, 68% are optimistic about Swiss stocks, up from 46%.
Brief: A plummet in European bond prices on the prospect of the European Central Bank withdrawing its stimulus has erased two-and-a-half years of gains. The total return on investment-grade debt from the region’s governments has fallen more than 3% this year to the lowest since the middle of 2019, according to the Bloomberg Euro Government Index. That means any investors tracking the benchmark have lost their gains since then. The latest leg lower reflects bonds losing value following the ECB’s shift to a more hawkish stance last week to deal with a surge in inflation. That followed the first loss in European government securities last year since 2006. Italian debt has been the worst performer.
Brief: With pandemic restrictions in the U.K. largely gone, offices are getting busier. Yet vast numbers of desks still remain empty. Even with Covid-19 case numbers flat or falling in the U.K., U.S. and much of Europe, many employees are still actively choosing to work from home for at least part of the week. It’s increasingly hard for managers to claim that their offices will simply fill up when the virus abates. Companies large and small are now adopting hybrid work patterns unrecognizable from pre-pandemic routines — all but killing off the five-day-a-week commute. Few predicted such a seismic shift, even when the pandemic began. “Everybody really did have an expectation that it would all go back to normal. And I think now is a dawning realization that it isn’t,” said Julia Hobsbawm, author of The Nowhere Office: Reinventing Work and the Workplace of the Future, to be published in the U.K. this month and the U.S. in April.
Brief: How asset owners rebalance their portfolios depends on how they value private investments — and there’s more than one way to get it right. According to a recent paper published by PGIM, massive market dislocations like the one that took place in March 2020 leave asset owners with a conundrum: if, and when, they should rebalance. “When reported private equity valuations lag public market valuations during public market declines, CIOs often find their portfolios over-allocated to PE,” the paper said. But the lag in valuations may not represent the most updated private equity performance data, meaning that allocators could be rebalancing when they don’t have to. PGIM explored two different ways to value private investments: proxy market value (PMV) and the Takahashi Alexander (TA) model. What PGIM found is that the decision to rebalance is affected significantly by the valuation method an allocator uses, and that the appropriate use for each depends on the type of institution using it.
Brief: Medical officers from Canada’s two major airlines and Toronto Pearson Airport have written an open letter requesting that the Canadian government move PCR testing from travellers at airports and into communities. Canada’s mandatory testing requirements for travel have led to significant flight cancellations for Air Canada and WestJet. The letter argues that because people travelling to Canada must get a PCR test prior to entering Canada and must be fully vaccinated, there is no good public health reason to require a second test upon arrival. “Over the last two months, Omicron has quickly become the predominant variant of Covid-19. As it spreads throughout our communities, we need to ensure Canada's limited testing resources are being used where Canadians need them most—to support our communities, schools, hospitals and long-term care homes.
Brief: Coming off a volatile five-day period to close out January last week, the stock market continues to run wild as investors reconsider rebalancing their portfolios. Consistent profits may be more difficult to come by in the near future as markets adjust to new financial conditions, one portfolio manager asserts. First Republic Private Wealth Management CIO Christopher Wolfe joined Yahoo Finance Live on Monday to discuss the outlook for the market in 2022. “It is [an investible market], let’s be clear about it,” Wolfe said. “But I think the Fed’s gonna make it a bit more challenging than it has in the past. Just so we’re clear, it’s been really easy in the past, because the monetary base has been growing so wildly.” As the Fed pursues a more hawkish monetary policy to curtail inflation, which reached 7% last December, markets have been especially jittery. Consensus economists expect a 7.2% increase in the Consumer Price Index in January, reflecting a cooling — though still undesirably high — rise in inflation.
Brief: Bank of Montreal has started bringing investment and corporate bankers back to their offices this week, and is seeking to have staff fully returned on a hybrid basis by early April. Bankers began their return on Feb. 7, and workers on all teams will spend two to three days a week in the office as of April 4, Alan Tannenbaum, head of global investment and corporate banking, said in a memo to staffers last week. Employees who aren’t vaccinated will have to continue working from home, according to the memo.Bank of Montreal’s plans mark one of the first moves by Canada’s banks to start refilling offices after the omicron variant caused a wave of infections that prompted governments to tighten restrictions and recommend companies let employees work remotely.
Brief: Investors pulled the most money last week from a popular high-yield bond fund since the coronavirus crisis first landed in the U.S. The SPDR Bloomberg High Yield Bond ETF JNK, -0.10% saw outflows of $717 million last week, according to FactSet Research. That’s the most since March 2020, according to Bloomberg News. Some investors have been encouraged by the resilience of credit during the stock-market turbulence of 2021. This year, the high-yield fund has slipped 3%, which is less than the 6% drop for the S&P 500 SPX, 0.01%. Investors like corporate bonds as an alternative when the economy slows but doesn’t fall into a recession. While equities suffer as growth prospects slump, companies are likely to continue to meet their debt obligations as long as the economy is growing.
Brief: 2022 is starting with several issues that could create serious volatility for traders in the months ahead. Aside from the supply chain problems and other economic disruptions caused by the pandemic, tensions triggered in the Indo-Pacific and Eastern Europe have added to growing uncertainty. The commodity markets are poised for potential price adjustments from the ancillary effects of these tensions. The situation in the Indo-Pacific is a slowly developing story between China and Taiwan. With Taiwan one of the largest producers of semiconductors, any disruptions could produce shortages and serious supply chain issues for everyone using semiconductor chips. The Forex markets might also be a good proxy for these developing events. Moves in the yuan and yen could foretell possible problems. The Ukrainian situation is a bit different in that there are two main markets which could be directly affected: grains and energy.
Brief: It was the first glimmer of hope for the beleaguered travel industry in 2020 when locked-down citizens started doing something new amid the pandemic: not working from home, but working from anywhere. Off they’d go for weeks or months at a time, to any locale with good surf and better Wi-Fi, to show off a new Zoom background after early morning swims. Today the era of decamping from your hometown might seem as far in the rearview mirror as a five-day, in-person workweek might appear on the horizon. But a new version of the trend is emerging—and it could prove a serious boon for the travel industry. The ability to work from home is profoundly, and permanently, changing the way we travel. More lenient office policies mean many workers can travel anytime, even during busy workweeks, as long as they can hit deadlines from far afield.
Brief: That bleak jobs report the White House had been bracing for never arrived Friday. Instead, President Joe Biden got the pleasant surprise that the U.S. economy had powered through the omicron wave of the coronavirus and posted 467,000 new jobs in January — along with strong revisions to job gains in the two prior months. It showed just how much the pandemic's grip on the economy has faded, though the nation is still grappling with high inflation. “Our country is taking everything that COVID has to throw at us, and we’ve come back stronger," Biden declared at the White House. The jobs report suggested the United States has entered a new phase in its recovery from the pandemic. And it capped something of a comeback week for the president. Also on Friday, the House passed a bill to jumpstart computer chip production and development, a key step for reconciling differences with an earlier measure approved by the Senate.
Brief: Money has flooded out of emerging market securities at breakneck speed in January as concerns over geopolitical tensions, monetary policies and recovery speeds gave investors the “jitters”, according to the latest data from the Institute of International Finance. With flows into emerging markets totalling an estimated $1.1bn for the month, IIF said increased volatility has generally pushed investors out of their emerging market bets. In December last year, IIF said foreign investment in emerging markets had come to an "abrupt standstill". Following a global pattern, inflation still remains an issue for many policymakers across the emerging market landscape while geopolitical tensions brew. IIF economist Jonathan Fortun said: "We see investors pulling money from emerging markets' bonds and equities at the fastest pace since March-2021, as anxiety builds over tighter monetary conditions, geopolitical frictions and fears that many economies will not recover quickly enough from the pandemic this year.
Brief: Canada’s labor market suffered a larger-than-expected setback last month after the nation was hit with fresh lockdowns meant to contain the omicron variant of COVID-19. The country shed 200,100 jobs in January, Statistics Canada reported Friday from Ottawa, ending a seven-month streak of gains. Economists in a Bloomberg survey were expecting a drop of 110,000. The unemployment rate rose to 6.5 per cent, from 6 per cent at the end of last year. Despite the setback, analysts expect a rebound as early as this month as containment measures are lifted, putting the economy back up against what the Bank of Canada believes is full capacity. Still, the sharper-than-expected decline could raise questions about the timing of Governor Tiff Macklem’s expected interest rate hikes. The Canadian dollar fell 0.7 per cent on the report to $1.2763 per U.S. dollar as of 9:22 a.m. Yields on Canadian two-year bonds rose, after U.S. employers added more jobs than expected in January.
Brief: Companies often say that employees are their most important asset, but you’d never know that by looking at corporate boards. Directors largely come from the ranks of current and retired CEOs, finance chiefs, lawyers and investors, with a smattering of academics thrown in. What you rarely found in the boardroom were human-resources experts.That’s changing. With workers quitting jobs at a record clip and corporate cultures convulsing over issues like remote work, burnout and diversity and inclusion, boardrooms are opening the door to more directors with actual experience managing workforces. The share of directorship roles across all companies in the S&P 1500 with specific human-resources skills increased to 19.4% in January from 11.3% two years ago, according to ISS ESG, the responsible-investing arm of Institutional Shareholder Services.
Brief: European oil majors are erasing their pandemic slump as tensions between Russia and the West drive Brent crude above US$92 a barrel. The Stoxx Europe 600 energy sub-index is outperforming all other sectors on Friday as crude heads for its seventh week of gains. Shell Plc, BP Plc and TotalEnergies SE led the rally, and the companies have now either erased their pandemic losses entirely or are close to doing so. Energy stocks have had the best returns in Europe so far in 2022 and strategists are bullish on a sector that underperformed in the past three years. A tight market and tensions around Ukraine have sent crude prices soaring. Now, investors are looking to earnings and guidance from the biggest companies to see where the stocks go from here.“Energy stocks are an attractive diversifier as the sector remains absolute and relative cheap with ongoing earnings upgrades,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “On top, the sector could also benefit from geopolitical tensions, strong nominal GDP growth in 2022, rising bond yields and heightened inflation risks.”
Brief: Swiss drugmaker Roche said on Thursday sales growth would slow this year as it braces for less demand for its COVID-19 medicines and tests, expecting immunity against the novel coronavirus to prevail in the population from about April. In an earnings statement, the company said it expected currency-adjusted 2022 sales to be flat or grow in the low-single digits, below last year's 9% gain. Roche anticipates sales of COVID-19 medicines and diagnostics to decrease by about 2 billion Swiss francs ($2.17 billion) to around 5 billion francs, it added. It proposed raising its 2021 dividend to 9.30 francs per share but its stock fell 2.6% on the outlook. Group earnings edged higher in 2021 as brisk demand for COVID-19 diagnostic tools and new prescriptions for drugs such as Hemlibra against haemophilia and cancer immunotherapy Tecentriq offset a sales decline in older cancer drugs.
Brief: Despite uncertainty caused by Covid-19, economic and geopolitical factors, new analysis from KPMG has confirmed that mid-market private equity investment in the UK in 2021 soared to the highest level ever recorded. Both volumes and values saw a boost, as a total of 803 deals, worth GBP46.8 billion were completed in 2021 - an increase of 40 per cent and 36 per cent, respectively. KPMG’s latest study also showed that while disruptions caused by the pandemic made 2020 an atypical year for dealmakers, the levels of activity seen in 2021 still surpassed pre-pandemic levels, with deal volumes up 20 per cent and deal values up 15 per cent, compared to 2019. The UK’s private equity market overall also thrived with a total of 1,545 deals worth GBP159.2 billion completed in 2021, up from 1,117 in 2020 and 1,246 in 2019. In line with the increase in values, KPMG’s research found that deal multiples rose across the UK private equity market, from 8.7x earnings in 2020 to 9.6x in 2021, while multiples in the mid-market remained fairly steady at 10.4x in 2021, versus 10.7x earnings in 2020.
Brief: Amid inflation worries and market volatility, a growing number of institutional investors are beginning to hand over the portfolio reins to active managers. The trend can be seen in the findings of a November CoreData Research survey of 378 global institutional investors. When institutional investors were asked what they considered to be the most important elements of portfolio construction in the current economic environment, 31 percent pointed to the need to hire skilled active managers. Thirty-seven percent of institutional investor respondents identified the importance of diversifying into uncorrelated assets. Institutional investors indicated that they believe inflation will pose the biggest risk to their investment portfolios in the coming year.
Brief: Companies handed a combined £1.3bn in controversial fast-track Covid contracts with minimal scrutiny also claimed at least £1m in furlough grants, it can be revealed. Analysis of the accounts of companies that won lucrative emergency contracts to supply personal protective equipment (PPE) to the NHS during the height of the pandemic shows 12 also claimed funds to put staff on furlough at taxpayers’ expense. Many had no prior history of supplying PPE but received huge boosts in revenue after securing deals to supply items ranging from gowns to masks. Overall the scramble to obtain PPE resulted in the Department of Health and Social Care (DHSC) spending £9bn on personal protective equipment that was either substandard, defective, past its use-by date or dramatically overpriced.
Brief: Last year’s tight labor markets are given marketing and distribution professionals in alternative investments a lot more job mobility and the opportunity to earn a higher paycheck. According to Sasha Jensen, founder of eponymous executive search firm Jensen Partners, compensation skyrocketed for these professionals, including those in junior roles. This comes alongside more movement generally in the industry. With increasing competition among alternative investment managers for investors’ capital, firms are in search of the right employees to raise funds. What’s more, long-established and new alternatives firms have started launching new products and strategies — meaning there are more jobs for the taking. “The Great Resignation in our universe just meant multiples of new hiring,” Jensen said. But it’s not as though companies are struggling to find top talent.
Brief: Bank of Montreal plans to start bringing investment and corporate bankers back to their offices next week, and is seeking to have staff fully returned on a hybrid basis by early April. Bankers will begin their return on Feb. 7, and workers on all teams will spend two to three days a week in the office as of April 4, Alan Tannenbaum, head of global investment and corporate banking, said in a memo to staffers Tuesday. Employees who aren’t vaccinated will have to continue working from home, according to the memo. Bank of Montreal’s plans mark one of the first moves by Canada’s banks to start refilling offices after the omicron variant caused a wave of infections that prompted governments to tighten restrictions and recommend companies let employees work remotely. Bank of Nova Scotia and Manulife Financial Corp. were among the Canadian financial firms that had set January dates for large-scale returns to their offices, only to pull those plans as omicron spread.
Brief: Employment at U.S. companies declined in January by the most since the early days of the pandemic as the omicron variant of the coronavirus registered a swift yet likely temporary blow to the nation’s labor market. Businesses’ payrolls fell by 301,000 last month in a broad-based decline, according to ADP Research Institute data released Wednesday. The median forecast in a Bloomberg survey of economists called for a 180,000 rise. The decrease in employment, due to a surge in Covid-19 infections that led to some business closures and restrained activity, exacerbates tightness in the job market. A near-record number of unfilled positions and increased employee turnover are contributing to capacity constraints. Still, employment growth is seen picking up as the spread of the omicron variant wanes.
Brief: Spurred by a massive inventory rebuild and consumers flush with cash, the U.S. economy last year grew at its fastest pace since 1984. Don’t expect a repeat performance in 2022. In fact, the year is starting with little growth signs at all as the late-year spread of omicron coupled with the ebbing tailwind of fiscal stimulus has economists across Wall Street knocking down their forecasts for gross domestic product. Combine that with a Federal Reserve that has pivoted from the easiest policy in its history to hawkish inflation-fighters, and the picture has suddenly changed substantially. The Atlanta Fed’s GDPNow gauge is currently tracking a first-quarter GDP gain of just 0.1%. “The economy is decelerating and downshifting,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council under then-President Donald Trump.
Brief: Investors may be underestimating the need for “aggressive” monetary tightening from the Federal Reserve and other central banks to combat inflation, resulting in “significant risks” for markets, according to Bridgewater Associates. Following hawkish comments from the Fed Chair Jerome Powell last week, investors have brought forward expectations of tightening, pricing in five quarter-point rate hikes this year. Further out, however, they’re predicting fewer rate increases, anticipating the Fed will end the cycle with the policy rate at about 1.65% and long-term inflation expectations anchored around 2%. Consumer prices surged 7% in December from a year earlier, the fastest pace since 1982. “The markets are discounting a smooth reversion to the prior decades’ low level of inflation, without the need for aggressive policy action -- that it will mostly just naturally happen on its own,” the world’s biggest hedge fund said in its 2022 outlook. “We see a coming clash between what is about to transpire and what is now being discounted.”
Brief: PayPal Holdings Inc. shares were set to sink to almost the lowest level since the pandemic’s onset, joining the likes of Peloton Interactive Inc. and Netflix Inc. in a post-earnings selloff. These companies have given back most of their multi-fold gains as demand for their services during Covid-19 lockdowns and mobility restrictions have quickly come to an end. PayPal’s December quarter numbers showed the same, prompting investors to dump the stock and hand losses of 19% in premarket trading. If these levels hold, it will be the stock’s worst day on record. Total payments volume climbed just 23% in the final three months of last year, the smallest increase in two years and fell short of analyst expectations. The results dragged down the share price of rival Block Inc., formerly Square Inc., by 8% and Affirm Holdings Inc. by 3% in premarket trading.
Brief: Thanks to the historic stock market rebound from pandemic lows, affluent 401(k)-holders and savvy investors in the U.S. enjoyed double-digit returns from stocks over the past two years. But not for the majority of Black Americans. Only 34% of Black American households owned equity investments, as compared with 61% of white families, according to Federal Reserve Board’s most recent survey in 2019. The average value of stocks Black Americans owned amounted only to $14,400, nearly a quarter of what their white peers held, the data said. “Because Black households are less likely to be invested in the stock market and on every level less likely to be engaged in the financial system, they not only entered the pandemic with large gaps, the likelihood is that we are going to see some of these gaps widen coming out of the pandemic,” said John Lettieri, the Economic Innovation Group’s president and CEO.
Brief: Billionaire investor Bill Ackman turned about $200 million in complex, pandemic-related bets into payoffs totaling nearly $4 billion, The Wall Street Journal reported Monday. The first bet happened early on in the pandemic. The CEO of Pershing Square Capital Management in February 2020 invested $27 million into instruments that would pay off if corporate bonds tumbled in value, the WSJ said. Ackman then sold his position a few weeks later for $2.6 billion after investors realized that companies affected by the crisis might not be able to pay off their debts. The second bet occurred as 2020 was winding down. This time, he assumed consumer spending would soar, stoke high inflation, and prompt the Federal Reserve to respond with rate hikes to cool prices.
Brief: With the pandemic wrecking the growth plans of some private equity-owned companies, lenders are helping buyout shops hold on to such assets until they develop further. Fund-to-fund transfers -- which allow a private equity firm to sell an asset from one of its fund to another -- are set to increase in 2022, bankers say. Strong investor demand for the debt package behind BC Partners’ transfer of CeramTec suggests more buyout firms may follow this model. The deal will let one arm of the buyout shop sell the commercial ceramics maker to satisfy the return requirements for one customer base, while allowing the other to sponsor an asset BC Partners believes has longer term potential. This kind of move isn’t entirely new, but it’s far from widespread. Bankers are entering into talks with a number of private equity firms about such transactions in a bid to deal with the adverse impacts of Covid-19. The moves are popular with institutional investors, as it’s quicker and easier to reinvest in an asset they already know and believe has bright prospects.
Brief: After posting its worst ever performance last year, Viking Global Investors is trying to explain its losses -- and it’s pinning the blame on the Covid-19 pandemic. The firm’s hedge fund, which invested in 2021 laggards such as Peloton Interactive Inc., Coupa Software Inc. and Adaptive Biotechnologies Corp., fell 4.5% in the year because it “underestimated the ongoing impact of Covid,” founder Andreas Halvorsen wrote in a letter to investors dated Jan. 18. Viking has been one of the hedge fund world’s biggest successes since its founding in 1999, registering only four down years, including the most recent one. But it suffered because of its bet that consumer spending would normalize, and that shoppers would shift back toward services such as travel and elective medical procedures. “In hindsight, these were bad bets,” Halvorsen said in the letter. But, he added, “we have maintained our positioning and believe companies exposed to reopening will benefit from both an improvement in fundamentals and a re-rating of multiples.”
Brief: Investors like family offices and high-net worth individuals have an opportunity to put their money into transformative real estate redevelopments planned by Hines, an international real estate firm that announced the first of a series of "tactical" real estate investment funds in January 2022. Investors have already committed about $590 million in equity to Hines U.S. Property Recovery Fund—the money gives the fund the capacity to invest $1.5 billion immediately. Hines plans to close the fund by May 2022 with a total investment of $1 billion, with a purchasing power of $2.5 billion after leverage. The fund has already bought assets like a trailer park in California with plans to redevelop it as industrial. Other projects might redevelop empty malls as mixed-use town centers or redevelop aging office buildings as apartments. So why does Hines believe now is a good time for a fund focused on redevelopment? And why is Hines so interested in small, equity investments from investors like family offices and high-net worth individuals?
Brief: In 2019 we interviewed Omiros D. Sarikas, the visionary CEO of Brookstreet Equity Partners – a London-based fund innovating the Private Equity and Venture Capital asset class – about the concept of investing in ‘asymmetric’ markets to generate alpha returns. In 2022, we ask Omiros what has changed in the aftermath of COVID-19. He talks to CEO Today about the development of Brookstreet 2.0, the era of ESG, and brings to the table Lucia Labuzikova to highlight the importance of Diversity, Inclusion and Talent Management in unlocking value for private equity investments. Omiros, good to have you back. Please reintroduce our readers to Brookstreet Equity Partners. Brookstreet Equity Partners (Brookstreet) is an award-winning, Mayfair-based investment platform that seeks out global asymmetric opportunities in undercapitalised markets. We set up the firm with the intention to be a beacon in the industry and developed a solid infrastructure. By means of example, our legal counsel also advised on Softbank’s $100bn+ Vision fund, our administrators handle $1.3+ trillion, our senior professionals have worked at McKinsey, Bulge Bracket Investment Banks and top tier Cross-Border Funds, our teams were educated at Harvard, Oxford and London and train at the British Venture Capital & Private Equity Association (BVCA) and the CFA Institute.
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